CVP and Sensitivity Analysis (Single Product). Victoria, Inc., has annual fixed costs totaling $240,000 and variable...

CVP and Sensitivity Analysis (Single Product). Victoria, Inc., has annual fixed costs totaling $240,000 and variable costs of $6 per unit. Each unit of product is sold for $30. Victoria expects to sell 12,000 units this year (this is the base case).

Required:

Find the break-even point in units.
How many units must be sold to earn an annual profit of $100,000? (Round to the nearest unit.)
Find the break-even point in sales dollars.
What amount of sales dollars is required to earn an annual profit of $140,000?
Find the margin of safety in units and in sales dollars.
Prepare a contribution margin income statement for the base case.
What will the operating profit (loss) be if the sales price decreases 30 percent? (Assume total sales remains at 12,000 units.)
Go back to the base case. What will the operating profit (loss) be if the variable cost per unit increases 10 percent? (Assume total sales remains at 12,000 units, and round to the nearest cent where appropriate.)

Solutions

Expert Solution

Contribution Margin Statement

	Particulars	Per Unit	Total - 12000 Units
	Selling Price	30	360000
Less :	Variable Cost	6	72000
	Contribution	24	288000
	(SP-VC)
Less :	Fixed Costs		240000
	Net Income		48000

1. Break Even Point (units) = Fixed Cost / Contribution per unit

= 240000/24 = 10000 Units

2. Desired Profit = $100000

Desired Sales (units) = (Desired profit + Fixed cost) / Contribution per unit

= (100000+240000)/24

= 14167 Units

3. Break Even point (dollars) = Fixed Cost/ PV ratio

= 240000/0.8 = 300000$

P/v Ratio = Contribution / Sales = 24/30 = 0.8

4. Margin of Safety

Units = Profit / Contribution per unit

= 48000/24 = 2000

Dollars = Profit / PV Ratio

= 48000/0.8 = 60000

6. Sales price decrease by 30%

Contribution Margin Statement

	Particulars	Per Unit	Total - 12000 Units
	Selling Price	21	252000
Less :	Variable Cost	6	72000
	Contribution	15	180000
	(SP-VC)
Less :	Fixed Costs		240000
	Net Income		-60000

Operating Loss = 60000

Variable cost - Increase by 10%

Contribution Margin Statement

	Particulars	Per Unit	Total - 12000 Units
	Selling Price	30	360000
Less :	Variable Cost	6.6	79200
	Contribution	23.4	280800
	(SP-VC)
Less :	Fixed Costs		240000
	Net Income		40800

ekkarill92 answered 1 year ago

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